The relationship between executive compensation and firm performance is a field of intense theoretical and empirical research. The purpose of this study is to gain additional insights into the nature of this relationship by examining empirically the relatively unexplored areas of its dynamics of adjustment, as well as its non-linearity. The findings of this study show strong evidence in support of the view that (a) executive compensation is characterized by a dynamic process of adjustment, and (b) the relationship between executive compensation and firm performance is non-linear and asymmetric. Additionally, the structure of asymmetry is found to be dependent on the measure of performance. Convexity characterizes the asymmetry of the relationship between executive compensation and market returns, while concavity distinguishes the asymmetry of the relationship between executive compensation and accounting returns. Copyright © 2008 John Wiley & Sons, Ltd.
Purpose -This paper aims to examine the relation between executive compensation, firm size and firm performance on a panel of the so-called ''new economy'' firms in the USA over the period 1996-2002. Design/methodology/approach -The authors use two measures of performance, total shareholder return and return on assets, and concentrate on total CEO compensation, which includes stock option compensation, as equity-based compensation practices have been prevalent in new economy firms. The estimation process uses both the feasible generalized least squares method of Parks and Kmenta and the panel corrected standard error method of Beck and Katz. These methodologies investigate error structures that do not conform to the classical ordinary least squares assumptions. Findings -The econometric results indicate that estimates on firm size are robust to alternative specifications of the error structures. There is evidence however that the effect of firm size on CEO compensation is more significant after the stock market crash of 2000. The opposite holds true for the estimates on firm performance. In addition, estimates on firm performance are more sensitive to the estimation method and the specification of the error structures.Research limitations/implications -The research presented in this paper is a first step in the direction of understanding the pay to performance relation in the ''new economy'' industries in the USA. Additional research is warranted, which should extend both the time series and the cross section aspects of the data. Originality/value -The paper fills an important gap in the existing literature by providing rigorous econometric evidence on the pay to performance relation in the so-called ''new economy'' industries. The evidence provided in this paper is relevant as it complements the findings in the literature on executive compensation in the so-called ''old economy'' industries, which typically make up the samples of most previous studies.
This paper employs time-series analysis to investigate the price dynamics of the house price indices included in the S&P/Case–Shiller Composite10 index and the validity of the ‘ripple effect’, following the approach outlined by Meen (1999). More specifically, the paper first considers the time-series properties of the capital gain from the sale of houses. That is, it examines whether shocks to the capital gain series produce permanent or transitory changes. In general, the findings lack uniformity and depend upon the assumptions imposed by the testing procedures. Secondly, it considers the time-series properties of the ratio of regional house price indices to the Composite10 index. That is, it examines whether shocks to these house price ratios exhibit trend reversion. The tests of this ‘ripple effect’ also display conflicting evidence.
The Great Moderation, the significant decline in the variability of economic activity, provides a most remarkable feature of the macroeconomic landscape in the last twenty years. A number of papers document the beginning of the Great Moderation in the US and the UK. In this paper, we use the Markov regime-switching models to document the end of the Great Moderation. The Great Moderation in the US and the UK begin at different point in time. The explanations for the Great Moderation fall into generally three different categories—good monetary policy, improved inventory management, or good luck. The end of the Great Moderation, however, occurs at approximately the same time in both the US and the UK. It seems unlikely that good monetary policy would turn into bad policy or that better inventory management would turn into worse management. Rather, the likely explanation comes from bad luck. Two likely culprits exist—energy-price and housing-price shocks
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